Paul Seabright “On Lying, Risk-Taking and the Implosion of the Euro” – The Princeton in Europe annual lecture

The launch of the Euro was a promise of prosperity made by Europe’s political élites to the citizens of the Euro area. But it has gone badly and dangerously wrong. Why? Much has been written about the causes of the Euro crisis and much ink spilt on trying to assign blame among the active participants in the drama: financiers, politicians, regulators, central bankers.

In this lecture Paul Seabright asks a different question: why did the rest of us play along? The active participants needed our money, our bank deposits, our votes – our trust, in short – in order to construct the Euro project. Trust in the project, like trust in the financial system and in many of the projects of modern democracy, required us to deploy psychological capacities that proved quite inadequate to the task.

Behavioural economics and neuroscience are starting to illuminate just why we have such difficulty evaluating complex financial promises like those made by the founders of the Euro project. In particular we have an evolved tendency to deal in dichotomies – such as risk/safety and truth/lies – that are quite unsuited to the continuous gradations of the modern economic landscape. Drawing on a wide range of sources, from neuroscientific experiments to air accident reports, Seabright brings home to us how much our collective illusions contributed to a major financial disaster with potentially serious consequences for democracy in Europe.

Comments

The euro crisis has been the talk of the town for quite sometime. And countries like Greece, Portugal and now Spain has fallen into this trap. I partially agree with Paul’s view, as that is one of the major crisis without any doubt.